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The Subsidizing Irresponsible Buying Decisions Act of 2009

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POSTED February 21, 2009 4:42 a.m.
Want a real story of hope?

You won’t find it in the $275 billion handout from Washington, D.C., designed to absolve those who were practicing greed and dishonesty instead of discipline, delayed gratification, and responsibility.

You’ll find the true stories of hope in the 90 percent of Americans who play by the rules and are either homeowners that stayed within their means or renters.

Day after day we’re inundated with stories of woe from people who took out zero down loans at an artificially lower introductory rate with principal only payments for the first two to three years who are upset that they were caught in a financial vice. What about the others who resisted temptations and are now buying homes they can afford?

Two stories of homebuyers from the recession of 1989-91 have stayed with me for the past 18 years. One was a farm worker who had a wife and five kids who bought a home in Lathrop. The other was a 19-year-old who got pregnant three years earlier.

First story of the farm worker. He worked year-round for two different area farmers. His wife was a seasonal worker at a cannery. They bought beans, rice, and flour by 50-pound sacks. They fed their family and clothed them focusing on needs and not wants. They were able to buy a home in 1992 using their income plus unemployment his wife got when she was laid off each year after the harvest to purchase a modest Lathrop home that needed tender loving care. Against all odds, they became homeowners because of discipline, a clear understanding of delayed gratification, and being financially responsible.

The woman who got pregnant in high school married the father of her son. She, however, vowed they wouldn’t end up like other couples caught in such a situation with a teen-age pregnancy. She was going to become a homeowner. Both worked full-time and did odd jobs. They also refrained from buying toys and eating out a lot. Again, they bought a modest home in 1992 but in Manteca.

The proposed housing bailout makes a mockery of those two hardworking, honest families plus millions of other Americans. Instead, it is rewarding irresponsible, “got-to-have-it-now” behavior with an absurd performance bonus of $1,000 a year for five years for those folks who have their loan modified – read that their debt substantially slashed – if they their reduced (and essentially subsidized)  payments on time.

The White House is proposing turning the country upside down for the benefit of 9 percent of the population is irresponsible. There is a good deal of evidence it probably won’t work after the $275 billion is all spent.

Part of that evidence is the obscene 50 to 60 percent re-default rate on loans that the banks have already modified. These are lenders that the banks determined had the income to commit 38 percent of all their income to a mortgage payment. The banks did this by making reasonable downward adjustments in principal and interest rates.

It is the same standard they are applying today to people who are buying foreclosed homes.

Yet these modified borrowers are re-defaulting at a rate in excess of 50 percent compared to virtually zilch for new borrowers even though they are being treated the same as those buying for the first-time now when it comes to qualifying. There are only two explanations. One, they never intended to make payments reduced or otherwise. Or, the most likely, they refused to dig in and make it work by reevaluating their spending habits elsewhere in their lives.

You can shave 10 percent off a PG&E bill by lowering the thermostat. You can go without air conditioning. You can chuck prepackaged and convenience food.  You can drop cell phones, internet service and cable TV services. But why do that if someone is going to keep bailing you out and you don’t suffer and consequences of your irresponsible behavior?

All the housing plan does is continue to enable those who refuse to accept the consequences of their actions but still demand all the benefits of hard work and discipline.

The White House really should give the housing bail-out bill and honest name.

Perhaps they can dub it, “Subsidizing the Irresponsible Buying Decisions Act of 2009.”

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